PRA Proposals on EVT for Equity Release Mortgages Under Solvency II

CP7/19 is relevant to the insurance and reinsurance companies holding equity release mortgages. SS3/17 presents an EVT to help PRA determine whether firms appear to be taking inappropriately large matching adjustment benefit from the restructured equity release mortgage held within the matching adjustment portfolios. Earlier, in December 2018, PRA had revised SS3/17 to clarify its expectations about how firms could perform the EVT, with this policy taking effect from December 31, 2019. The policy statement PS31/18, which was issued alongside the revised SS3/17, noted that PRA would consult in 2019 on additional proposals. CP7/19 is now addressing these proposals, which are on the following topics:

• Review and update of the deferment rate and volatility parameters
• Treatment of assets other than equity release mortgages held by the special purpose vehicle used to restructure equity release mortgages
• Treatment of equity release mortgage loans where the amount of principal and/or accrued interest at a given future date is uncertain
• Frequency with which EVT would be assessed
• Principles for assessing equity release mortgage risks in internal model Solvency Capital Requirements

Related Links

• Notification
• CP7/19 (PDF)
• Letter from David Rule (PDF)

Comment Due Date: July 03, 2019

Effective Date: December 31, 2019 (Proposed)

Keywords: Europe, EU, Insurance, Solvency II, Equity Release Mortgage, CP7/19, Matching Adjustments, Effective Value Test, PRA